Fall economic update 2016

Finance Minister Bill Morneau delivered the 2016 Fall Economic Update, “A Plan for Middle Class Progress” in the House of Commons on November 1st. The statement represents an important milestone for the government, offering an overview of the current economic climate and federal deficit, identifying a number of new measures, while providing a preview of what to expect in Budget 2017. The address comes in the midst of slower than predicted economic growth.

Minister Morneau used the opportunity to first outline the government’s achievements and then to introduce significant further spending under several new programs. The update included a projected deficit of $25.1 billion in 2016-2017 and $27.8 billion in 2017-2018. The new spend initiatives will keep the federal government in deficit through 2021-2022 and does not provide a plan for deficit reduction. The Finance Minister framed the deficit as an investment in securing long-term jobs for Canada’s middle class.

The government introduced several programs and spending increases that will be central to the plan’s success, highlighting infrastructure, a new global skills strategy, and middle class jobs.

The update also provided the government with a platform to reiterate their commitment to ensuring openness and transparency, guaranteeing independence for the Chief Statistician and the Parliamentary Budget Officer.

INVESTING IN INFRASTRUCTURE

The update introduced the Canada Infrastructure Bank, a centerpiece of the government’s new plan which endeavors to attract private sector infrastructure investment. The Infrastructure Bank will be responsible for investing at least $35 billion, including $15 billion from existing infrastructure funds, from the federal government into large infrastructure projects that contribute to economic growth through loans, loan guarantees and equity investments. The establishment of the Canada Infrastructure Bank was a key recommendation from Minister Morneau’s Advisory Council on Economic Growth and has been met with scrutiny from opposition MP’s, who argue that the government is taking a step toward privatizing government assets. Enabling legislation will be required to set up the CIB, to establish governance rules and processes for allocating funds.

Boosting spending in infrastructure from Budget 2016, the Minister introduced several components of a new “Transformational Infrastructure Plan”, which will bring total intended spending to $180 billion by 2027-2028, adding an additional two years to the existing 10-year infrastructure plan. A portion of these funds will be directed to the Infrastructure Bank:

  • Social Infrastructure – $21.9 billion
  • Public Transit – $25.3 billion
  • Green Infrastructure – $21.9 billion
  • Transportation & Trade Corridors – $10.1 billion
  • Rural & Northern Communities – $2 billion


CANADA IN THE GLOBAL MARKETPLACE

A second pillar of the Economic Statement was measures to create long-term and sustainable new jobs. The headline of the job creation approach is a new Invest in Canada Hub, which represents a $218 million commitment. The additional funds would help increase the number of trade commissioners tasked to attract foreign investment to Canada and encourage companies to expand further in Canada. The Hub will work with Global Affairs Canada.

The Plan also acknowledges that in order to compete effectively around the world, Canadian companies need access to skilled workers from other countries. A new Global Skills Strategy, which represents a $271.3 million investment, will work to attract foreign talent to Canada. The Strategy will set a two-week standard for processing visa reviews and work permits for low-risk, high-skill talent, and will introduce a new work permit exemption for short-duration work terms, all in an effort to support relocation of companies to headquarter in Canada.

The investment in the Canada Hub will also be accompanied by an increase in the foreign direct investment threshold to $1 billion in 2017 (2 years earlier than planned) as well as the release of more specific rules relating to state owned enterprise investment in Canada.

CONCLUSION

Initial reaction has focused less on the story of long-term investment Minister Morneau aimed to communicate and more on worsening economic conditions. The deficit and spending will generate headlines, but the government will work to change the narrative in the coming months.

The investment in the Canada Hub as well as the focus on attracting global talent and encouraging immigration are consistent with the priorities outlined by Innovation, Science and Economic Development Minister Navdeep Bains, who is overseeing execution of the Innovation Agenda, and, offering a possible glimpse into Budget 2017.

Whereas the growth of protectionist movements has become an international trend, the update acknowledges the importance of marketing Canada to the world. However, the dreary economic figures also place increased pressure on the Liberal government, who have spent the first year of their mandate consulting Canadians, to make important and difficult decisions and deliver real results.

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